U.S. v. Sabbeth

• Decision Date: 01 August 2000
• Docket Number: DEFENDANT-APPELLANT,Docket No. 00-1586
• Parties: (2nd Cir. 2001) UNITED STATES OF AMERICA, APPELLEE, v. STEPHEN J. SABBETH,, CAROLE SABBETH, ALSO KNOWN AS CAROLE FIORE, DEFENDANT
• Court: U.S. Court of Appeals — Second Circuit

Page 207

262 F.3d 207 (2nd Cir. 2001)

UNITED STATES OF AMERICA, APPELLEE, v. STEPHEN J. SABBETH, DEFENDANT-APPELLANT, CAROLE SABBETH, ALSO KNOWN AS CAROLE FIORE, DEFENDANT.

Docket No. 00-1586

August Term, 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: July 11, 2001

Decided August 21, 2001

Following a jury trial, defendant-appellant was convicted in the United States District Court for the Eastern District of New York (Denis R. Hurley, Judge) of conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C. § 371; bankruptcy fraud, in violation of 18 U.S.C. § 152(7); making false oaths in relation to a bankruptcy proceeding, in violation of 18 U.S.C. § 152(2); and money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(i). On appeal, defendant-appellant challenges his conviction and sentence by arguing that (1) the District Court applied an erroneous definition of "property of... [a] corporation" under 18 U.S.C. § 152(7); (2) the District Court applied an erroneous definition of "fraudulently" for purposes of the false-oath counts; (3) the indictment was defective with respect to the money-laundering count because it failed to include "an effect on interstate commerce" as an element of the offense; (4) the District Court should have calculated his sentence for the money-laundering count by using the provision of the Sentencing Guidelines applicable to fraud rather than the provision applicable to money laundering; and (5) the District Court should have grouped his fraud and money laundering offenses under Section 3D1.2(b) of the Sentencing Guidelines.

Affirmed.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Lewis J. Liman (Adam M. Abensohn, of counsel), Wilmer, Cutler & Pickering, New York, Ny, for Defendant-Appellant.

Charles S. Kleinberg, Assistant United States Attorney (Susan Corkery, David C. James, Assistant United States Attorneys, of counsel; Loretta E. Lynch, United States Attorney, on the brief), United States Attorney's Office for the Eastern District of New York, Brooklyn, Ny, for Appellee.

Before: Walker, Chief Judge, Cabranes and Straub, Circuit Judges.

Jose A. Cabranes, Circuit Judge

Following a jury trial, defendant Stephen Sabbeth was convicted in the United States District Court for the Eastern District of New York (Denis R. Hurley, Judge) of conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C. § 371; bankruptcy fraud, in violation of 18 U.S.C. § 152(7); making false oaths in relation to a bankruptcy proceeding, in violation of 18 U.S.C. § 152(2); and money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(i). On appeal, defendant- appellant challenges his conviction and sentence by arguing that (1) the District Court applied an erroneous definition of "property of... [a] corporation" under 18 U.S.C. § 152(7); (2) the District Court applied an erroneous definition of "fraudulently" for purposes of the false-oath counts; (3) the indictment was defective with respect to the money- laundering count because it failed to include "an effect on interstate commerce" as an element of the offense; (4) the District Court should have calculated his sentence for the money-laundering count by using the provision of the Sentencing Guidelines applicable to fraud rather than the provision applicable to money laundering; and (5) the District Court should have grouped his fraud and money laundering offenses under Section 3D1.2 of the Sentencing Guidelines.

For the reasons stated below, we find all of these arguments to be without merit and therefore affirm.

I. Background

The following facts are drawn from the record and viewed in the light most favorable to the Government. See Burks v. United States, 437 U.S. 1, 17 (1978).

Stephen Sabbeth was the president and sole shareholder of Sabbeth Industries, Ltd. ("SIL" or "Sabbeth Industries"), a family-run lumber company located in Deer Park, New York. Sabbeth was also SIL's landlord, and he periodically lent money to the corporation.

SIL's primary source of financing was a line of credit provided jointly by National Westminister Bank and Manufacturers Hanover Trust, Co. (collectively, the "Banks"), the outstanding balance of which ranged between $14 million and $18 million during the period from July 1989 to September 1990. As collateral for this line of credit, the Banks held a security interest in all of SIL's assets and a personal guarantee from Sabbeth that he would pay all outstanding obligations under the line of credit.

In 1988, the lumber market began to decline, and SIL fell into arrears on its loans. To pay down the line of credit with the Banks, Sabbeth mortgaged his home and loaned the proceeds to SIL for payment to the Banks. Because SIL owed Sabbeth approximately $2 million for past- due obligations, Sabbeth also executed two subordination agreements with National Westminister Bank, in which he agreed to receive payment from SIL for past (and any future) debt obligations only if the line of credit was paid in full. Despite Sabbeth's efforts, SIL suffered a complete financial collapse by the middle of 1989.

In November 1989, Sabbeth met with representatives of the Banks to discuss SIL's financial predicament. The representatives expressed grave concerns about SIL's financial well-being and indicated that the Banks might consider liquidating SIL in the near future. To allay their concerns, Sabbeth agreed to meet each month with the Banks' representatives to monitor SIL's finances and to determine whether SIL would need to file for bankruptcy.

Soon after the November 1989 meeting, Sabbeth devised a scheme to transfer SIL's remaining assets to himself and his wife, Carole Sabbeth. From June 1 to December 28, 1990, Sabbeth withdrew over $750,000 from SIL and deposited this money into five different accounts under his or his wife's name (the "initial transfers"). Sabbeth accomplished these initial transfers by writing approximately 55 non-payroll checks to himself on behalf of SIL.

Once the money was in his or his wife's accounts, Sabbeth transferred the money into secret accounts that he had set up using his wife's maiden name, his mother-in-law's home address, and false social security numbers (the "subsequent transfers"). Many of these subsequent transfers were made in cash amounts of less than $10,000 to avoid currency-reporting requirements. See 31 C.F.R. § 103.22(a) (requiring a bank to report to the IRS any cash transaction of $10,000 or more); 31 U.S.C. § 5313(a) (similar); 31 U.S.C. § 5324 (making it a crime for an individual to structure a financial transaction to avoid the filing requirements of 31 U.S.C. § 5313).

Prior to November 1990, the Banks were unaware that Sabbeth had been writing non-payroll SIL checks to himself. After learning about some of these checks, representatives of the Banks confronted Sabbeth on a number of occasions; however, each time he was confronted, Sabbeth told the representatives that he no longer had the transferred money.

On December 28, 1990, SIL filed for bankruptcy under Chapter 11. At the time of the filing, Sabbeth had over $1 million in his secret accounts, all of which had previously belonged to SIL.

During the course of the bankruptcy proceeding, National Westminister Bank hired a law firm to investigate SIL's finances. By the end of 1991, the law firm discovered that Sabbeth had withdrawn over $1 million of assets from SIL and was holding these funds in secret accounts. This discovery led National Westminister Bank to commence an action in state court in December 1991 for fraudulent conveyance, seeking to attach the funds in the secret accounts. A few months later, SIL commenced a preference action in bankruptcy court to recover the same monies. Both actions were eventually tried together before the bankruptcy court.

Sabbeth submitted an affidavit admitting that the SIL checks that he had written to himself were voidable preference payments; however, he testified that he had written them anyway to restore some financial security to his wife. Sabbeth also testified that two employees of National Westminister Bank knew of the payments, and that one had even approved of them. Finally, he claimed that the false social security number on the secret accounts was a "mistake," and that his wife had tried to correct the error.¹ At the end of the proceedings, the bankruptcy court held that the transfers between SIL and Sabbeth were preference payments-though not necessarily fraudulent conveyances-and required Sabbeth to return the remaining monies to the bankruptcy estate.

By indictment dated May 7, 1997, a federal grand jury charged Sabbeth with one count of conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C. § 371; one count of bankruptcy fraud, in violation of 18 U.S.C. § 152(7); three counts of making false oaths in relation to a bankruptcy proceeding, in violation of 18 U.S.C. § 152(2); and one count of money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(i).

On March 3, 1999, following a four-week trial, a jury found Sabbeth guilty of all six counts; and on July 21, 2000, the District Court sentenced Sabbeth principally to 97 months' imprisonment, 3 years' supervised release, restitution in the amount of $125,000, and a special assessment of $300.²

Judgment was entered accordingly, and this timely appeal followed.

II. Challenges to Conviction

On appeal, Sabbeth challenges his conviction on three bases, each of which we consider in turn.

A. Definition of "Property of... [a] Corporation" Under 18 U.S.C. § 152(7)

Sabbeth's first claim is that the District Court constructively amended the indictment by using an erroneous definition of "property of... [a] corporation" in the jury instructions on the bankruptcy- fraud count, 18 U.S.C. § 152(7).

Section 152(7) makes it unlawful for any person, in contemplation of his bankruptcy or that of another person or corporation, to transfer or conceal knowingly and...